As technological advancements continue to reshape our lives, they’re also transforming the way government bodies operate. One such entity, the Income Tax Department, has ingeniously adopted Artificial Intelligence (AI) and data analytics to combat rampant fraudulent deduction claims, bringing about a major breakthrough in tax compliance.
The Department’s aggressive stance against these deceptive practices has seen over 40,000 taxpayers rescind their fabricated claims worth an astonishing ₹1,045 crore. This achievement is part of a broader strategy designed to eliminate the spurious activities of agents promising ‘assured refunds’.
AI and Data Analytics: The New Sheriff in Town
The Department’s AI-enabled systems are revolutionizing tax scrutiny by promptly detecting discrepancies between Income Tax Returns (ITRs) and income data from AIS (Annual Information Statement) and Form 26AS. Misled taxpayers who fell prey to refund agents promising hefty refunds through false declarations are now being brought to justice, thanks to this advanced technology.
Popular Deduction Sections: The Main Culprits
The AI’s heightened vigilance has exposed rampant misuse of popular deduction sections such as House Rent Allowance (HRA) under Section 10(13A), donations under Section 80G, and loan interests under the various 80-series sections. With the aid of AI, these claims are now cross-verified against TDS data and bank statements, making it increasingly difficult for fraudulent deductions to slip through the cracks.
The Consequences: A Hefty Price to Pay
The repercussions of erroneous reporting of deductions are severe. The Income Tax Act imposes penalties of up to 200% of the tax payable and annual interest rates skyrocketing to 24%. Extreme violators may even face prosecution, resulting in possible imprisonment for up to seven years, particularly under Section 276C for willful evasion.
The Role of the Income Tax Return-Updated (ITR-U) Form
In the wake of these developments, there has been a marked increase in the usage of the ITR-U form. Taxpayers are hastily adjusting their overstated deductions to evade the severe penalties, signaling a positive shift towards tax compliance.
Conclusion: The Future of Tax Compliance
AI and data analytics are transforming the landscape of tax compliance in India, making tax evasion a high-risk, low-reward endeavor. Taxpayers must be vigilant and honest in their declarations to avoid severe penalties and possible prosecution. As the government continues to leverage technology in its fight against tax fraud, the future looks promising for a more transparent and compliant tax system. Remember, honesty isn’t just the best policy; it’s the only policy that won’t land you in hot water with the taxman.
Originally published on https://www.businesstoday.in/personal-finance/tax/story/claimed-fake-tax-deductions-i-t-depts-ai-flags-bogus-hra-loans-claims-hefty-penalties-await-484683-2025-07-15
